Fitch Ratings says UniCredito Italiano’s possible acquisition of the German bank, Bayerische Hypo-und Vereinsbank would likely pose a serious management challenge.

Fitch’s comments follow yesterday’s confirmation by UCI and HVB that talks about a possible deal are taking place. Although it notes that UCI stated that the outcome remains “highly uncertain”.

“For UCI, the attraction of HVB is its substantial presence in a developed western European economy and the possibility of obtaining this good franchise at an acceptable price,” it says. “Like UCI, HVB has developed widespread operations in Central and Eastern Europe, which could provide synergies, although there may be some overlaps.”

HVB has worked hard to restructure its domestic business, Fitch notes. “Asset quality has been problematic and in the face of weak economic growth there could be further deterioration,” it cautions, noting that, in its opinion, “the bank is not yet generating satisfactory profitability in its domestic market.”

Should the acquisition actually occur, Fitch says it will review the new bank’s financial structure and management’s intended actions to strengthen revenue generation, obtain synergies and implement clear reporting lines in HVB. It notes that UCI has successfully restructured its own Italian operations, transforming several regional banks and one national bank into separate retail, corporate and private banks. And, in 2004 UCI earned a 20% return on equity from its well-managed new European subsidiaries.

“HVB has a larger asset base than UCI and any acquisition of these dimensions would clearly test UCI’s management,” adds Matthew Taylor, senior director of Fitch.